August 23, 2016

The oil price crash: why didn’t we see it coming and what’s the future?

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More than 350,000 jobs have been lost globally in the oil and gas industry since the current downturn started in the summer of 2014. By the end of this year, Oil & Gas UK predicts 120,000 jobs in the North Sea will have gone.

There are some people within the industry who claim they saw this downturn coming and were able to make adjustments. However, many firms didn’t. Looking back, you’ve got to ask: why not?

All the signs were there, we just never picked up on them.

When the International Energy Agency announced in November 2012 that, thanks to the commercialised development of the fracking process, the US would leapfrog Saudi Arabia and Russia to become the world’s biggest producer in the next five years – and that the US would be self-sufficient in energy by 2035 – did we really consider what that would mean as an industry?

Did we not think an increase in US production could create a problem for the rest of us?

Did we really believe OPEC would watch the US industry grow and create space for it by trimming back its own production levels?

Did we assume the China-led Asian economy was on a path of infinite expansion and provide a ready market for ever-more oil?

The fact is that we have no one to blame for this but ourselves. So, what does the future hold for us now?

As the mantra ‘lower for longer’ morphs into ‘lower forever’ we have to accept that the days of $100 oil may well be behind us. In that environment, shouldn’t we face facts and accept the time is right for large-scale decommissioning of our older assets?

This is a cyclical industry, but there are only so many ups and downs that can be endured before the decision is taken to decommission on a large scale.

Oil & Gas UK has forecast total decommissioning spend on sanctioned assets would reach £50billion through to 2055, although the Oil & Gas Authority recently said it wanted the industry to bring costs down by 35 percent through greater collaboration to encourage some of the bigger projects to begin.

It’s been estimated some 140 fields in the North Sea will cease production in the next five years and more than 1,200 wells need to be plugged and abandoned.

The fact that the UK is expected to invest a mere £2billion on decommissioning next year is scandalous, given that we have the potential to create a global specialism out of this lucrative work, which could completely reinvigorate our supply chain and still link in with the government’s Maximising Economic Recovery strategy.

It was interesting to note that a Norwegian company, rather than a UK one, won the contract to decommission Maersk’s Janice floating production unit, despite news that Scottish companies had tendered for the work.

It was reported that Scotland lost out on this contract because tenders fell short on critical requirements including cost, facilities and a record for carrying out such projects.

If we are to establish a reputation for excellence in this field, we simply cannot let opportunities like this slip through our fingers.

The current low oil price has proved that we are too often the architects of our own failings – let’s not extend these shortcomings into an area of potential growth for us: because if we don’t show a real appetite for this work soon others will, and we will be left wondering where we went wrong.

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